OREANDA-NEWS. October 12, 2010. The Duma passed a law setting the rate for the social insurance tax for IT companies at 14% until 2018, compared with a standard rate for Russian companies of 26% (which is set to rise to 34% in 2011). The law is retroactive to 1 January 2010, reported the press-centre of OTKRITIE Financial Corporation. 

View: The move was generally expected. Luxoft (IBS's software development segment) and other IT companies have enjoyed tax privileges historically. There has been broad consensus that these privileges needed to be extended, particularly given that salaries constitute a much larger percentage of expenses for IT companies (such as Luxoft) than for the average company: 80% vs. 13%. The new law corrects what seems to have been an oversight.

Valuation & Action: IBS Group trades at a 2011 EV/EBITDA of 7.1x. We believe the news was largely priced in, but the elimination of a downside risk may be taken positively. We reiterate our BUY rating and target price of USD 33/share.